Bond vigilantes awaken partners in the stock market

A bond vigilante is a bond market investor who protests monetary or fiscal policies he considers inflationary by selling bonds, thus increasing yields. … As a result, bond prices fall and yields rise, which increases the net cost of borrowing.

Bond vigilantes could be discovering allies in the stock market.

With inflation fears back in vogue and the U.S. budget deficit perceived surge, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be spring up in equity markets too, where they could quite possibly punish already rickety stocks for policymakers’ and lawmakers’ conducts.

The label "bond vigilante" was coined by Yardeni in 1983 to describe investors’ insistence on high yields to hedge for the dangers of inflation and budget deficits for the duration of the Reagan administration. A stock version of a vigilante would seek to influence lawmakers and policymakers by slamming equity rates.

Bond yields began to climb on Feb. 2 after U.S. government data exhibited the biggest wage gains since 2009, convincing investors of the growing threat of inflation, long tame since the 2007-2009 recession.

U.S. stock investors have now turned vulnerable to rising yields after the past week’s upturn, which lifts borrowing costs and could lessen economic earnings and progress, Yardeni said. That also comes against the backdrop of racking up government debt.